Standard & Poor's Ratings Services said it has raised its long-term rating on West Palm Beach, Fla.'s public service tax bonds to AA-minus from A-plus.
The outlook is stable.
"The upgrade is based on the city's historically strong coverage levels, which management projects will be maintained," said Standard & Poor's credit analyst Le T Quach.
The rating also reflects the city's: revenue source from essential services, including electric, telecommunications, water, and gas; good although weakened economic profile, which supports the public service tax (PST); and absence of additional parity debt plans.
Countering these strengths is the potential volatility of the utility revenue combined with the PST being levied at the maximum rate allowed by law, so volatility can't be offset by increased tax rates. An interlocal agreement with the Community Redevelopment Agency (CRA), which will provide funds, if available after the city's senior obligations are met, to cover about 60% of debt service on the bonds, mitigates the volatility. However, the CRA funds are not pledged to the bonds, and the rating reflects the expected level of maximum annual debt service coverage from public service tax revenues.
The PST is levied on electricity, metered or bottled gas, and water service within the city. Officials levy the utilities tax at 10%, the maximum rate allowable by law. Before Oct. 1, 2001 (fiscal 2002), the definition of utilities tax included telecommunications services. A change in the Communications Services Simplified Tax Act resulted in the tax's repeal; it was replaced with a discretionary local communication service tax, which took effect that day and is pledged to the bonds.
The stable outlook reflects coverage levels will remain strong, and that West Palm Beach will not issue additional parity PST debt. Rating upside or downside is limited at this time given the stable history and nature of the pledged revenues coupled with the aforementioned lack of additional bonding plan